SS 103: The Solution through Personal Retirement Accounts
A viable reform plan
for Social Security has to take several things into account. The new
system must provide young Americans with a secure form of retirement
income, maintain the benefits of those already in or near retirement
and be capable of sustaining economic growth. The creation of
personal retirement accounts would be able to accomplish all of the
How PRAs Work.
retirement accounts would allow young workers to keep a portion of
their Social Security taxes and place that money in an individual
retirement account. Workers would then invest that money in stocks,
bonds, and equities in order to build a nest egg for their
retirement. Once a worker retires, he or she would draw upon his or
her PRA savings to provide income during retirement.
Retirement Accounts Secure Your Future.
If given the right to
create a personal account YOU would own your account and YOU would
control your account. Right now, your Social Security taxes are
being spent by Congress, but, through ownership, you can be confident
about the future of your retirement savings.
personal account will yield a much higher return—hence, a much
higher retirement income—than the government system promises.
Under the current system, your payroll taxes earn a real rate of return of about 2%.3 But if you had a personal account invested in a mix stocks
and equities you could earn an average real rate of
return of 5.5% or possibly even more.4
That means you would earn 175% more with a personal account!
Retirement Accounts secure the present.
retirement accounts will not eliminate or even reduce the
benefits of your parents or grandparents who may be near or in
retirement. If personal accounts were created, there
would be a transition period in which only a small percentage of your
Social Security taxes could be moved to a personal account; the rest
of the taxes would continue to fund the existing system. Current
benefits would be preserved and you get to save for your future at
the same time.
Retirement Accounts secure the economy.
accounts would feed the economy by increasing savings and investment.
When savings and investment grows productivity increases, wages
rise, unemployment shrinks, and the economy grows.
retirement accounts, the government will most likely have to increase
taxes to support the Social Security system. Since half of all
Social Security taxes are paid by employers, the cost of hiring new
workers will soar as well: unemployment will rise, productivity will
decline, and salaries will shrink. To make matters worse, young
Americans will suffer the worst from the economic decline because
rising unemployment will make it much harder for recent graduates to
find a job and support ourselves.